Is There a Housing Bubble – and Is It About To Pop?
The news that average house prices in London have hit almost £500,000 has, unsurprisingly, led to talk of house price bubbles and potential crashes. But how worried should we be?
According to Land Registry, London saw an increase of 9.6% in house prices in the year to September – a rate few were predicting at the start of the year.
However, the picture for the UK as a whole is a little more subdued, with prices having risen by a more modest 5.3% in the previous 12 months, bringing the average UK house price to £186,553.
Rates remain steady
What happens next on house prices is hard to predict, as there are so many variables at work. Although regulation is influencing the amount lenders are able to lend, competition amongst the major lenders is intensifying. And, whilst it seems inevitable that mortgage interest rates will eventually rise from recent historic lows, there are few signs to suggest any imminent changes.
Demand outstripping supply
Employment rates are at their strongest since records began and earnings are, for the first time in many years, outpacing inflation. This, alongside the ever-growing population, is likely to continue fuelling a demand for housing.
Meanwhile, there remains a significant shortage of housing stock. Despite the pick-up in house-building levels in the last couple of years, many estate agents are reporting a lack of property coming onto the market with ‘for sale’ housing stock at an 11-year low.
One influence on the availability of homes for sale will be the recent tax changes affecting so-called ‘Buy to Let’ landlords, of which there are now an estimated 2 million. Whether landlords choose to sell-up, increase rents to cover their costs, or accept lower returns, the impact will likely be felt gradually over the next few years.
So what can we expect?
Strengthening demand from would-be buyers, combined with constrained supply, suggests that the UK as a whole is unlikely to see any significant ‘correction’ in house prices in the near future. This view is shared by many forecasters, including estate agency Savills who predict continued, steady growth of between 2.5 – 5% per year for the next five years.
Predicting the likely direction of central London house prices is far tougher. Estate agents in the capital are still forecasting growth in the year ahead, but there is no doubt that activity has eased back in recent months. With at least 20,000 ‘luxury’ homes currently under development or in the planning stages (a level far greater than the historic norm), a period of consolidation seems likely.
Your home may be repossessed if you do not keep up repayments on your mortgage.
